UK New immigration check requirements on banks and building societies: are you prepared?

 LONDON (Capital Markets in Africa) – From 1 January 2018, banks and building societies will be required to undertake quarterly immigration status checks on all existing customer current accounts.  Following this, the Home Office may then require the bank (or building society) to close any accounts or products operated by or for a person who does not have leave to remain in the UK.  Those subject to the requirements should act now to ensure that they have appropriate systems in place to conduct these checks and also to ensure they have taken sufficient steps to manage the consequences of regulatory or contractual risks that might arise where accounts need to be closed.

Scope of the new requirements
The Immigration Act 2016 introduces new requirements on banks to cross-check the details of all existing personal current account holders held by them against a Home Office database of illegal migrants or “disqualified persons”.  This is part of the UK Government’s efforts to prevent and discourage illegal migration.  Where the bank identifies an existing account operated by or for a disqualified person, it must notify the Home Office and may subsequently be required to close any accounts operated by or for the benefit of that person.

The closure requirements apply not only to personal current accounts held by that individual, but also to jointly held accounts, savings accounts, credit cards and potentially to other financial products operated by them or on their behalf.  These requirements are in addition to, and potentially far more extensive than, the immigration checks currently required to be conducted when opening new current accounts.

Failure to comply with the requirements could lead to punitive action being taken by the FCA in the form of financial penalties, restrictions on deposit-taking permissions or even criminal sanctions.  Banks and building societies operating current accounts should therefore be taking steps to assess the impact of these new requirements on their business, as well as developing and implementing appropriate internal processes to meet these obligations in advance of the beginning of 2018.

Current account screening
Section 40A of the 2016 Act requires banks to carry out routine immigration checks in relation to each existing “current account” held with it.  This provision comes into force on 30 October 2017, and such checks must be conducted on a quarterly basis starting from 1 January 2018.  This means checking whether, according to information supplied by the Home Office via Cifas, the account is operated by or for a disqualified person.  Where the bank identifies a current account operated by or for a disqualified person following an immigration check, it must as soon as reasonably practicable notify and provide details of the account holder to the Home Office.

Freezing orders and account closure requirements
Following this initial notification by the bank, the Home Office will then confirm whether or not the individual has leave to remain in the UK.  If the individual is considered a disqualified person, the Home Office may choose to apply to the courts for a freezing order in respect of the account or accounts held by that person.  Where the Home Office chooses not to apply for a freezing order, or where such an order is not granted, the Home Office must notify the bank of the requirement to close.  In this case, the bank is then required under section 40G to close each account held with it that is operated by or for the disqualified person.  This includes joint accounts and accounts where the disqualified person is merely a signatory.

The closure requirements under section 40G apply broadly to any “account”, and the legislation provides that an account would include “a financial product by means of which a payment may be made”.  The scope of the Act here is very unclear and there have been suggestions that this should be interpreted very broadly.  This would appear to include a very wide range of products offered by a bank, including current accounts, savings accounts, credit cards, joint accounts and potentially many other categories of financial products such as mortgage accounts and investment products.  To date, the Home Office has provided very little guidance as to the scope of products that will be covered by the closure requirements.  Banks and building societies need to be considering now what accounts and products offered by them might fall within the scope of these requirements.

Practical implications
Given the breadth of the types of products potentially affected and the range of different situations that may arise (for example, in relation to joint account holders), it is important to consider now how the bank or building society might be affected and ensure appropriate protections are in place.  Careful consideration should also be given to the potential impact on any non-disqualified joint account holders and the bank’s Treating Customers Fairly obligations with the FCA.  Detailed guidance for staff will be required to deal with these issues appropriately to ensure that account closures do not lead to customer complaints, regulatory breaches or civil proceedings.

Where a bank or building society is required to close an account, it must inform any affected account holders, including the disqualified person and any joint account holders, of the reasons why it has done so.  Consideration should be given as to whether funds held by an illegal migrant might in some circumstances constitute criminal property and whether this raises disclosure requirements under the Proceeds of Crime Act 2002.

By Addleshaw Goddard LLP – Matt Butter and Nichola Peters